Assessing Enphase Energy’s Q1 Results and Outlook Amid Changing Market Conditions.

Actually, the matter is clear: US solar stocks should benefit massively from the US government’s climate support program, euphemistically referred to as the “Inflation Reduction Act” (IRA), especially since it is important to keep Chinese competition at arm’s length. Goldman Sachs had estimated an annual EPS boost of $2-3 for Enphase. That sounds good. Too good to be true? Enphase’s Q1 figures initially seemed to confirm the optimistic investment thesis. The outlook indicates why it is not so easy – and shows the legal, tax and economic conditions on the US home market, where the Californian company generates two thirds of its sales. But first to the numbers:

Positive: Q1 revenue was $726 million (non-GAAP) compared to $441 million in the first quarter of 2022. Gross margin also increased significantly to 45.7 percent (41.0 percent). The cost increased from $66.25 million to $98.4 million. Net income increased from $109.67 million to $192.32 million. Adjusted earnings per share rose to $1.37 from $0.79. Orders from abroad are picking up and production capacities are being increased in the current quarter. Sounds good, but the stock plummeted from $227 on April 25 to an intraday low of $161 after the numbers were released. What happened?

Negative: Even if seasonal effects can provide a distorted picture with sequential series of numbers, it is worth going back to the Q4 numbers 2022. The comparison shows that growth is slowing down. Sales in Q1 were only slightly above the level of the previous quarter. The reason was not international business (Europe), where revenues increased by 25 percent. Rather, the US home market is weakening, where sales fell by nine percent compared to the previous quarter. The reason for this is the higher financing costs that private households have to bear when they put solar systems on their roofs. In addition, the feed-in tariff in California was reduced on April 15, from 0.30 to 0.08 dollars per kWh. Solar systems installed up to this point are still covered by the old regulation. Against this background, the drop in sales in the USA is disappointing – a last-minute deal looks different.

outlook: For the second quarter, Enphase expects sales of between $700 million and $750 million. That’s well below the consensus estimate of $758 million. At between 41 and 44 percent, the gross margin is also expected to be lower than in the past quarter, but above expectations. Operating costs are said to be up to $102 million, higher than current levels. All of this also contributed to many investors voting with their feet.

My Take: The long-term prospects for Enphase Energy may appear good and the losses over the past few days appear exaggerated given the growth, particularly in Europe. However, the high financing interest rates and the lower feed-in tariffs on the important Californian market are changing the calculations of many households with a view to installing solar systems. Against this background, the forward P/E ratio of just over 30 seems quite high. Enphase itself expects better business again in the second half of the year, because it wants to grow more strongly again with new products and higher product capacity in the USA and wants to push international expansion. Growth in Europe and Latin America is encouraging. Anyone who invests in Enphase stocks, like us, needs staying power and must be willing to accept the wild swings in the price.